How a 401(k)-to-Roth conversion works

When you move money from a 401(k) to a Roth IRA, you are withdrawing funds from your employer plan and depositing them into a Roth account you control. The IRS treats this as a taxable event: you pay income tax on the amount you convert in the year you move it. After that, the money grows tax-free in the Roth, and you can withdraw earnings without tax once you turn 59½ and have held the account for at least five years.

You do not have to convert your entire 401(k) balance at once. You can convert part of it now and leave the rest in the 401(k), or convert in multiple years to spread the tax bill across different tax years. The conversion itself does not require your employer's permission — once you leave the job or reach age 59½ (depending on your plan's rules), the money is yours to move.

The tax you owe is calculated based on your total income for that year. If you convert $50,000, you add $50,000 to your taxable income, which may push you into a higher tax bracket. You pay the tax from your regular income or savings, not from the conversion itself — taking the tax money from the converted funds shrinks what actually goes into the Roth.

Key Takeaways

  • A 401(k)-to-Roth conversion is a taxable withdrawal: you owe income tax on the full amount you move in the year you convert it.
  • You can convert part of your 401(k) or all of it, and you can spread conversions across multiple years to manage your tax bill.
  • After conversion, the money grows tax-free in the Roth, and you can withdraw it tax-free after age 59½ if the account has been open for at least five years.
  • If you have a traditional IRA or other pre-tax retirement accounts, the IRS "pro-rata rule" may increase the tax you owe on the conversion.
  • You must complete the conversion within 60 days of withdrawing the money from your 401(k), or the IRS treats it as a regular withdrawal subject to penalties.

When you can convert a 401(k) to a Roth

The timing depends on your employment status and your plan's rules. If you have left your job, you can convert your 401(k) balance at any time — there is no age requirement. If you are still employed, most plans do not allow conversions until you turn 59½, though some plans permit conversions of after-tax contributions or allow a conversion if you take a loan first and then repay it. Check your plan documents or ask your employer's benefits administrator what your specific plan allows.

If you are over 72, you must take your required minimum distribution (RMD) from the 401(k) before you convert. You cannot convert to avoid the RMD, but you can convert the RMD itself along with additional funds if you choose.

There is no income limit on who can convert a 401(k) to a Roth. Unlike direct contributions to a Roth IRA, which phase out at higher incomes, conversions are open to anyone regardless of how much you earn.

The tax bill and the pro-rata rule

The amount of tax you owe depends on whether you have other pre-tax retirement accounts. If your only retirement savings is the 401(k) you are converting, you pay tax on the full conversion amount at your ordinary income tax rate for that year. If you also have a traditional IRA, SEP IRA, or SIMPLE IRA with pre-tax money in it, the IRS pro-rata rule applies.

The pro-rata rule treats all your pre-tax retirement accounts as one pool. If 70 percent of that pool is pre-tax money and 30 percent is after-tax money, then 70 percent of your conversion is taxable. This can create a large unexpected tax bill. For example, if you have a $100,000 traditional IRA with pre-tax contributions and you convert $50,000 from your 401(k), the IRS may tax $40,000 of the conversion (80 percent of $50,000) because 80 percent of your combined pre-tax accounts is pre-tax money.

One strategy to reduce this tax is a backdoor Roth: you roll your traditional IRA into your 401(k) (if your plan allows it) before converting, which removes it from the pro-rata calculation. This only works if your 401(k) accepts incoming rollovers — not all plans do. Talk to a tax professional before converting if you have multiple pre-tax accounts.

How to move the money: direct rollover vs. 60-day rollover

A direct rollover is the safest method. You contact your 401(k) plan administrator and request a direct rollover to your Roth IRA. The plan sends the money straight to the Roth custodian (usually a bank or brokerage) without it passing through your hands. There is no withholding, no 60-day deadline to worry about, and no risk of accidentally triggering a penalty.

A 60-day rollover means the plan sends you a check. You then deposit it into your Roth IRA within 60 calendar days. The plan typically withholds 20 percent for federal taxes, so if you convert $50,000, you receive a check for $40,000 and owe the tax on the full $50,000. To complete the conversion, you must deposit the full $50,000 into the Roth within 60 days — if you only deposit the $40,000 you received, the missing $10,000 is treated as a non-rollover withdrawal and you owe a 10 percent early withdrawal penalty plus income tax on it (unless you are over 59½).

Most people use a direct rollover because it avoids the withholding trap and the 60-day clock. If you receive a check by accident, you can still complete the rollover within 60 days, but you must have the full amount ready to deposit.

Steps to convert your 401(k)

First, open a Roth IRA if you do not already have one. You can open one at any bank, brokerage, or credit union that offers IRAs — Fidelity, Vanguard, Charles Schwab, and most local banks all offer them. You will need your Social Security number and basic personal information. There is no cost to open an account.

Second, contact your 401(k) plan administrator (usually through your employer's benefits department or the plan's website) and request a direct rollover to your Roth IRA. You will need to provide the Roth custodian's name, your account number at the Roth custodian, and the Roth custodian's routing information. The plan will send the money directly to the Roth.

Third, confirm the money arrived in your Roth account. This usually takes one to two weeks. Once it is there, you can invest it however you choose — the Roth custodian will show you the available investment options.

Fourth, keep records of the conversion for your taxes. Your 401(k) plan will send you a Form 1099-R showing the amount converted. Your Roth custodian will also send you a Form 5498 showing the contribution. You will report the conversion on your tax return (usually Form 8606 if you have pre-tax IRA accounts) and pay the tax owed.

Penalties and what goes wrong

If you miss the 60-day deadline on a 60-day rollover, the IRS treats the withdrawal as a regular distribution. You owe income tax on it, and if you are under 59½, you also owe a 10 percent early withdrawal penalty. There is no way to undo this — the deadline is firm.

If you convert and then change your mind, you can undo the conversion with a recharacterization — but only if you do it by the tax-filing deadline (usually April 15 of the following year, plus extensions). You file Form 8606 with your tax return to report the recharacterization, and the money goes back to a traditional IRA. You cannot recharacterize a conversion back into the same 401(k) plan; it must go to a traditional IRA.

If you have taken a loan from your 401(k), you cannot convert the loan balance. You must repay the loan first, or it becomes a taxable distribution when you leave the job.

Frequently Asked Questions

Do I have to convert all my 401(k) at once?

No. You can convert part of your balance now and leave the rest in the 401(k), or convert in multiple years. Splitting the conversion across years can help you manage the tax bill by keeping your income lower in each individual year.

What if I am still working — can I convert my current employer's 401(k)?

Most plans do not allow it until you turn 59½ or leave the job. Some plans allow conversions of after-tax contributions or permit a conversion after you take a loan and repay it. Check your plan documents or ask your benefits administrator what your specific plan allows.

Can I convert if I have already taken my required minimum distribution?

Yes. You must take your RMD first, but you can convert the RMD itself plus additional funds if you want. The RMD counts toward your conversion amount for tax purposes.

What happens if I convert and then my income is higher than I expected?

You still owe tax on the conversion at your actual tax rate for that year. You cannot undo a conversion after the tax-filing deadline has passed. If you convert early in the year and your income rises later, you may end up in a higher tax bracket than you planned.

Can I convert a 401(k) from a previous job?

Yes. Once you leave a job, you can convert that 401(k) to a Roth at any time. You do not have to wait until you reach a certain age or until you retire.